Tuesday, September 20, 2022

CFTC’s Goldsmith Romero calls for more admissions of wrongdoing in settlements

By Anne Sherry, J.D.

Expressing concerns about the CFTC’s routine acceptance of neither-admit-nor-deny settlements, Commissioner Christy Goldsmith Romero proposed a test for assessing whether the Commission should require an admission of wrongdoing. The official said that what was intended to be an enforcement tool used in limited circumstances has become a routine expectation of defendants and deprives the public of the goals of enforcement: justice, accountability, and deterrence. Goldsmith Romero also observed that the SEC is reexamining its own practice of routinely allowing no-admission settlements.

Goldsmith Romero clarified that not every settlement should require an admission of wrongdoing. In her view, some circumstances might warrant a neither-admit-nor-deny approach, and that should be available as a tool in the CFTC’s arsenal. However, she challenges the way neither-admit-nor-deny has become a routine expectation rather than a tool applied in limited circumstances. The commissioner analogized to guilty pleas in criminal proceedings, where courts may reject the plea if the defendant hedges their responsibility. Just like criminal cases, civil cases for financial fraud often involve human victims who deserve the same closure, she said.

Like the aftermath of the 2008 financial crisis when the SEC and CFTC announced they would require more defendants to admit wrongdoing, the CFTC is again in an environment calling out for public accountability, Goldsmith Romero said. Commodity markets face significant challenges related to the pandemic and the Russian invasion of Ukraine. Furthermore, new technologies like crypto are bringing new investors into the markets while also offering new avenues for fraud.

Goldsmith Romero accordingly proposed the Heightened Enforcement Accountability and Transparency Test, or HEAT test, to provide specific factors for the CFTC to consider when assessing a settlement. If one or more of the following factors are met, the CFTC should consider requiring an admission of wrongdoing:
  • Egregious conduct;
  • A criminal scheme;
  • Significant harm or risks to investors and/or market participants;
  • Significant harm or risks to market integrity;
  • A recidivist defendant;
  • Obstruction, lying, or concealment to a regulator or other authority; and
  • The need to send a pronounced message about particular conduct or practices.
The commissioner said that the test is intentionally broad and that, over time, the Commission will develop a body of precedent through its applications of the HEAT test. Getting out ahead of criticism that defendants will never settle cases if they have to admit they acted wrongly, Goldsmith Romero said, “nothing ventured, nothing gained. I have not spent my career in federal law enforcement with the goal of settling cases but instead to serve the public interest goals of justice, accountability, and deterrence to the fullest extent possible.”